© Linda Gorchels (2009)
What is the purpose of cooperative advertising? Or market development funds? To many manufacturers, the programs are necessary evils. So they make no efforts to improve program utilization rates. Worse yet, they may try to maximize the percent of claimable funds that are NOT used. That can be a mistake. Well-planned and well-executed programs help your channel partners (distributors, dealers, etc.) grow market share. And that helps increase manufacturer sales as well. Remember that a distributor’s or dealer’s market position is a result of the mix of products valued by a select market segment. The manufacturer’s brand benefits from the strength of this position.
In addition to the general benefit of a stronger dealer being able to elevate a supplier’s position, manufacturer marketers might want more specific goals to be accomplished through their coop advertising efforts. These marketers will realize the most success by transforming into campaign planners who use a full complement of marketing tools, media, and objectives.
Be clear about WHY you are doing the program
A well-planned program starts with precise objectives. What do you want the results of the program to be? Here are some examples:
help a dealer/distributor develop a new territory
stimulate pre-season demand for your product line
generate a short-term bump in sales
maintain a consistent brand identity
encourage the performance of specific functions
While this is not an exhaustive list, it’s a starting point. Each objective requires potential program design changes.
Develop a new territory
Look at the first objective. To help a dealer develop a new territory, you must first understand the targeted end-customers. What mix of products and services (including but going beyond a parochial perspective of your own brands) do they want? Help your select dealers position themselves as providing for these customer expectations better than their competitors. This may require, at least for a short time, a liberalizing of strict rules for the way they incorporate your brand in their advertising. Rather than demanding an exclusive focus on your brand, for example, allow them to advertise your brand as part of a system or solution without endangering their reimbursement. Similarly you might consider a temporary modification to the process of accruing funds for market development. Most of the time the money for market development funds is accumulated from a percentage of the prior year’s sales (or purchases). But to help out a new reseller, you might consider an “earn-as-you-go” fund accumulation for the first year. Finally, spurring territory growth may necessitate giving these resellers access to some of your direct accounts. For example, Silicon Graphics, in a recent effort to double its business through distribution, helped solution providers expand their reach by providing them a list of named accounts to speed up territory development.
Stimulate pre-season demand
To stimulate pre-season demand, the timing of the program must coincide with the seasonal parameters of your business. While it can be difficult to sell snow blowers in the fall, or air conditioners in the winter, distributor support systems can help. Boot camps and seminars can heighten excitement about new products and can be used to introduce new coop programs and products. The program must be clearly communicated to (and bought into by) the distributors in advance of its launch. Ad slicks must be ready on time. And you may need to incorporate incentives to encourage early purchases.
Generate a short-term bump in sales
To generate a short-term bump in sales, end-customer promotions can be built into the program. You might expect distributors to participate in end-customer promotions, contests and give-always. Design customizable direct-mail programs to enable dealers to create personalized mailers and to fine-tune mail lists. If the program is based on a short-term sale price to end-customers, structure the coop program with a requirement to include the sale price in the advertising to qualify for reimbursement.
Preserve a consistent brand identity
To preserve a consistent brand identity, you must maintain “control” or oversight of the brand message being communicated. Reimbursement may be contingent on the advertising including approved product images, authorized manufacturer logo usage, and/or specific benefit statements. High-quality, downloadable graphics – as well as clear brand guidelines – are important.
Encourage specific functions
Finally, coop programs can be designed to encourage the performance of specific functions. Coop funds may be used for exhibiting at a trade show, for displaying manufacturer counter (point-of-sale) posters for a specified time period, or for hosting open houses. When coop funds are used for events like open houses, there are commonly restrictions on the funds. You might specify that they can be used to cover the cost of invitations, for example, but not food. Generally these applications require prior approval by the manufacturer.
Use a campaign framework
While most marketers understand the importance of reach, frequency and timing in their own advertising programs, they don’t always apply the principles in their work with the channel. Add to that the complexity of B2B sales (complicated products, multiple decision influencers, and long sales cycles), and the importance of an integrated campaign becomes apparent. A manufacturer-channel marketing communications (marcom) calendar, listing the manufacturer’s promotional efforts along with the available channel programs and collateral, illustrates frequency across media tools.
Start by plotting on the calendar the months when corporate marketing communications efforts will take place. List planned national advertising, trade show attendance, public relations efforts and other manufacturer-centered promotions. Next, list the planned product marketing programs, ad slicks, merchandising kits and promotional events that dealers can choose to participate in. (Remember to include the costs of these items.) Not only will this encourage the channel to be more deliberate in their collateral utilization, it also helps improve the budgeting process.
By planning in advance, manufacturers can negotiate ad rates with publications and pass along discounts to dealers for local/regional insertions. Educate the channel about the importance of multiple contacts with customers (and influencers) to gain attention. Some companies use co-marketing programs (in addition to or in lieu of coop advertising) – by partnering with the dealer at trade shows, linking with their websites or using other approaches to increase campaign effectiveness.
There are many administrative issues that need to be pre-planned to allow the programs to run smoothly. Distributors must know several things. How much money can they accrue for cooperative advertising? How much of their advertising costs will be reimbursed? What are the program requirements? What is the standard process to apply for reimbursement? Here are some thoughts on these administrative decisions.
- On what basis can money be accrued for coop funds? Most manufacturers calculate available coop funds based on a percentage of the distributor’s previous year’s net paid purchases. It’s true that purchases are more easily trackable than distributor sales. Yet, using purchase volume as a criterion rewards distributors for how much they purchase rather than how much they sell. Therefore, some manufacturers prefer to use net sales rather than net purchases. Also, note that the prior year’s activity may be inappropriate for a new dealer or a new product. In these cases a quarterly accrual – or even an advance accrual – may be more appropriate.
- What percentage of this net business (as described above) can be used for coop? The most common range is 1-5% of net business, but it can vary significantly by industry. Ask yourself what the potential benefit might be of an additional percentage point in your ability to accomplish your stated objectives.
- How much of a dealer’s advertising can the accrued coop funds be used for? While the 1-5% of business indicates the total fund pool available, not all manufacturers reimburse all of a dealer’s ad expenses – even if there are funds available. Generally, reimbursement is between 25% and 100% of the dealer’s direct expense, with an additional prorating depending on the percent of the ad dedicated to the manufacturer’s product. Some manufacturers will not cover any of the cost of a shared ad, or may specify that at least 50% of the ad be devoted to their brand to qualify for the proration.
- What requirements must be adhered to? The specific requirements should be based on the objectives mentioned earlier. Define the acceptable media types (newspaper, radio, direct mail, web, etc.). Specify whether (and which) logos, product images, slogans, brand promises, sales terms, etc. are required for the advertising to be approved, and if manufacturer templates are required. If there are restrictions on competing products being placed in the ad, describe that as well.
- What is the process for applying for reimbursement? The easiest way to handle this is to provide a simple downloadable template for reimbursement. The template will specify several things: (a) the timing for filing of the application (e.g., within 60 days of the ad being placed), (b) the percentage of the cost to be reimbursed, (c) any costs specifically excluded from reimbursement, (d) whether the reimbursement will be in the form of a rebate or a credit, and (e) any minimums or maximums in terms of dollar amounts or number of advertising claims accepted per year. The template should also list the necessary attachments (e.g., original tear sheet or notarized script, and invoice for the advertising listing dates and/or air times as appropriate) to validate ad placement.